Stock picking vs index investing
There’s a common belief that attempting to outperform the stock market is futile. A thread on the r/investing subreddit asked if anyone can beat the market. Here are some direct replies from the community:
- “I know I am statistically extremely unlikely to beat the market, and if I do beat it, it’s through luck, not skill.”
- “The only way you can really beat the market is to hold a highly concentrated portfolio and hit it big in 1 stock”
- “As a retail investor, if I beat the market picking individual stocks, it was mostly from luck.”
Even an investopedia.com article suggests that successful stock pickers like Warren Buffett may have just been “exceptionally lucky.” It appears the online investing community is generally against the idea of individual stock picking. This short comment from the forums of RedFlagDeals sums it up well.
But allow me to go against the grain and push back a little. 😎 I believe you can beat the market if you have the right decision making process. 🙂 My net worth today is largely built on my stock picking history.
Internet consensus: Amateur investors can’t beat the market over time. That’s why you should just buy index funds and forget about stock picking.
12.87% is the annual rate of return on my TFSA portfolio over the last 9.5 years according to TD portfolio statistics. It’s one of my oldest investment accounts. As readers will know I share all my stock holdings publicly for accountability reasons.
It appears the couch potato method of index investing is very popular with netizens. In the subreddit, r/PersonalFinanceCanada even the moderators have admitted that, “the general consensus on PFC is that people should look for low-cost, passive index investments.”
Don’t get me wrong. The Canadian couch potato aggressive portfolio performed quite well over the last 10 years. I’m just saying maybe there are better investment strategies out there. 🙂
Why index investing isn’t all that passive
Index funds may appear to be passive, but they are actually more actively managed than most realize. This is something the index investing community doesn’t like to admit because it undermines the strategy’s reputation of being objective, hands off, and untainted by human biases.